No net proceeds, no royalty, Minnova replies to Opawica

The reason Opawica Explorations (TSE) has yet to receive a royalty payment from the producing Lac Shortt gold mine in northwestern Quebec is because there has been no royalty payable, Minnova Inc. (TSE) says in reply to a lawsuit brought against it and Falconbridge Ltd. (TSE) earlier this year.

“Since the property was brought into production, the expenses properly incurred have exceeded the gross cash income from the sale of minerals and other receipts derived from the property; there have accordingly been no net proceeds of production and therefore there has been no royalty payable to the plaintiff,” writes Minnova in its statement of defence.

Minnova and Falconbridge, claims Opawica, are in breach of agreement and fiduciary duties.

Opawica in 1979 optioned the Lac Shortt property to Falconbridge in return for a royalty payment equal to 7.5% of net proceeds of production. The property was subsequently dealt to Minnova (or Corp. Falconbridge Copper as it was then known), which in July, 1983, announced it was putting the property into production.

Minnova, which is now controlled by Kerr Addison Mines (TSE), has a 94.2% interest in the Lac Shortt project, while Falconbridge has a 5.8% interest. The two sides don’t agree on when the mine became a producer. Opawica, in its statement of claim, says the Lac Shortt property was a producing gold mine “by the latter part of 1984;” Minnova says in its statement of defence the mine went into production Jan 1, 1985.

In its statement of defence, Falconbridge says it transferred 100% of its interests in the property in March, 1984, to Minnova (subject to a retained beneficial interest), and by way of the transfer, Minnova agreed to assume Falconbridge’s rights and obligations. Falconbridge denies accountability with regard to the royalty payments.

Minnova, in its 1987 annual report, records gold production at Lac Shortt of 53,889 oz for the year, compared with 64,031 oz for 1986. Operating cost in 1987 was $357(C) per oz, compared with $293 the year before. Minnova says the Lac Shortt mine and mill showed an operating profit of $12,746 in 1987, a decrease of 10% from the previous year. Profit before tax at Lac Shortt in 1987 was $3,237, the company says.